TD Securities economists, led by Oscar Munoz, have revised their outlook for the Federal Reserve's monetary policy, now projecting that there will be no rate cuts in 2026 due to ongoing inflationary pressures. The economists cite persistent inflation stemming from the Iran conflict, elevated oil prices, and strained supply chains as key factors delaying disinflation and making inflation progress unfeasible this year [1].
The report states, 'We are revising our Fed call and no longer expect rate cuts in 2026. With the Iran conflict in a stalemate, oil prices still high, and supply chains stressed, we no longer see inflation progress as feasible this year. Additional easing in 2027 is still our base case once impacts from Iran subside.' TD Securities now anticipates policy easing to begin in 2027, with a projected 75 basis points of cuts starting in March, aiming to return policy to their estimated neutral rate of 3% [1].
The economists warn that the Federal Open Market Committee's (FOMC) threshold for rate cuts is rising, and hawkish risks remain. They emphasize that, barring an unexpected deterioration in the labor market or a shock that rapidly tightens financial conditions, the Fed will not ease policy this year. The upcoming June FOMC meeting is highlighted as a likely platform for the Committee to signal a change in guidance, even with Kevin Warsh entering as Fed Chair [1].
TD Securities also expects the median Fed official will not project rate cuts for 2026 in the dot plot, and some participants may even forecast hikes in 2027. Despite these hawkish signals, the potential for downside growth risks is cited as a key reason why a rate cut remains the more likely next move for the Fed compared to a hike [1].
CONCLUSION
TD Securities now expects the Federal Reserve to hold rates steady through 2026, with the first rate cuts likely in 2027 as inflation risks persist. The June FOMC meeting is anticipated as a potential turning point for policy guidance, but the outlook remains cautious amid ongoing geopolitical and supply chain pressures.